For Better Or For Worse

You might feel that you know your customer very well. But do you know when he or she is unhappy? Research indicates that you probably don't. Look at these alarming statistics:

It costs, on average, five times as much to get a new customer as it does to keep an existing one.

These statistics come from John Goodman, president of TARP (Technical Assistance Research Programs) Corp. in Arlington, VA. TARP Corp. conducted extensive research on customer satisfaction for organizations in the tire and auto industries (Ford Motor Co.), several consumer industries (Coca-Cola Co.), government segments (White House, U.S. Postal Service), and the outdoor power equipment industry (John Deere, Case IH).

"The problem we see is that most dissatisfied customers never complain,"says Goodman. "And when they do complain, most problems are not effectively resolved. Most businesses don't realize how much revenue is lost by this."

Unhappy customers are expensive

On average, the potential loss from a consumer's unresolved problem is $142. But the losses can be trailed further than that. TARP's studies show a bad customer experience will hurt you even more. Let's use a word-of-mouth example - one of a rental business' most effective mediums for generating floor traffic. When a customer tells eight friends about his good experience at your business, on average, at least one of them will become your customer.

The same rule applies to a bad review. You will probably lose at least one potential customer from the bad remarks of a dissatisfied customer. If you extrapolate those potential sales over a seven-year sales cycle, it could result in thousands of dollars of lost sales - all from one bad experience.

On the flipside, if you can 1) get your customers to tell you when they are dissatisfied and 2) resolve their situation in a timely, effective manner, TARP statistics show 95 percent of those complainants will remain loyal to your business. There are several benefits to having an aggressive customer service system:

Effective marketing tool. Producing more satisfied customers means word-of-mouth will consistently bring in more business, sometimes allowing you to cut back on other more expensive marketing programs.

Turn complaints into sales

So, what can you do to increase true customer satisfaction (and therefore, increase sales), and prevent future problems of a similar nature? TARP has six steps to help you.

Before we discuss solutions, though, remember most complaints have nothing to do with actual product failure. TARP research shows that one third are due to personnel, one third to customer misunderstanding of how to properly use the product, and one third to customer abuse of the product.

"Really, 40 percent of dissatisfaction is caused by the customer because he didn't listen,"says Goodman. "The truth is, you need to anticipate this. Ask yourself and your employees, ‘What are the three stupid things the customer will do? What can we do to save him from himself?'"

1. Communicate